Legal Malpractice: Cadwalader Gets $17M Verdict Overturned

Legal Malpractice CadwaladerBloomberg BNA reported that the New York Court of Appeals, that state’s highest court, overturned a $17.2 million legal malpractice verdict that a private equity fund run by Washington Redskins owner Daniel Snyder won against Am Law 200 member Cadwala-der, Wickersham & Taft LLP.

The Court of Appeals ruled that the lower courts’ ruling “should be modified…by deny-ing plaintiff’s motion for summary judgment and reinstating defendant’s affirmative de-fenses of the statute of limitations and comparative negligence.”

Underlying Case

Snyder owns private equity firm Red Zone, LLC, which in 2005 owned 12% of theme park operator Six Flags Inc., and undertook a proxy battle to gain control of a majority of the stock.

Red Zone retained investment banker UBS Securities to act as its financial advisor for the proxy battle, and claims that it retained Cadwalader to execute an agreement be-tween Red Zone and UBS that would limit the bank’s fee to $2 million, unless Red Zone acquired a majority of Six Flags’ voting stock.

Red Zone eventually gained control of a majority of the seats on Six Flags’ board of di-rectors, but it refused to pay UBS more than $2M, because it didn’t acquire a majority of Six Flags’ stock.

UBS maintained that its agreement with Red Zone called for it to be paid $10M, if Red Zone gained control of Six Flags, and it sued Red Zone in 2007 for the unpaid balance of $8M, plus damages and interest.

It succeeded at trial, and its victory was upheld unanimously by the New York Court of Appeals. It was awarded a final judgment of $11.6M in 2011.

Malpractice Claim

After Red Zone lost the UBS litigation, it sued Cadwalader for malpractice, claiming that it mishandled the contract between Red Zone and UBS.

Its complaint alleged breach of contract and professional negligence, and sought $8 mil-lion for the fee it had to pay to UBS, roughly $3.5 million in court costs and interest, and an anticipated $1.5 million in additional litigation costs.

Defense and Rebuttal

Cadwalader argued that it’s representation of Red Zone in the matter ended in 2005, after the contract between Red Zone and UBS was executed, and the complaint should thus be dismissed, because the Statute of Limitations – which is three years in New York –  expired in 2008.

However, Red Zone countered that when UBS demanded payment of the $8 million un-paid balance in 2007 for its work on the Six Flags deal, Red Zone retained Cadwalader to remedy the problem, and Cadwalader continued to advise Red Zone on the matter through November, 2010.

Ruling

The trial judge and Appellate Division ruled that the continuous representation doctrine applied, which tolled the three-year statute of limitations. The appellate panel stated:

“Although defendant drafted the [contract] in 2005, it provided legal advice throughout the UBS litigation from 2007 through late 2010…Although plaintiff was represented by other counsel in the UBS litigation, plaintiff and its trial counsel continued to confer with defendant and share privileged documents regarding its defense strategy.”

However, the high court ruled that the lower courts analyzed the continuous represent-ation doctrine improperly:

 “Triable questions of fact exist regarding whether the statute of limitations was tolled by the continuous representation doctrine in light of: the significant gap in time between the alleged malpractice and the later communications between the parties; the changed nature of the alleged legal representation of plaintiff by defendant; the absence of any clear delineation of the period of such representation; and defendant’s submission of affidavits disclaiming any mutual understanding of legal representation after 2005.”

The high court also ruled that the evidence suggested that “material triable questions of fact exist regarding whether (Cadwalader) failed to exercise the ordinary reasonable skill and knowledge commonly possessed by members of the legal profession.”

For example, an affidavit by Block, the former Cadwalader lawyer who advised Red Zone during its negotiations with UBS, claimed that he repeatedly warned Snyder about flaws in the contract that sought to limit the fees Red Zone would pay UBS, while in his own affidavit, Snyder called Block’s claim an “outright lie”.

Finally, Snyder and Red Zone claimed that Block’s affidavit contradicted his deposition testimony in the fee litigation between Red Zone and UBS.

The Appellate Division agreed, finding that Block’s affidavit in the malpractice case “flatly contradict(ed) his…deposition testimony” in the UBS litigation. However, the Court of Ap-peals ruled that Block’s affidavit “did not flatly contradict his prior deposition testimony”, and thus “should have been considered in opposition to (Red Zone’s) motion” for sum-mary judgment in the malpractice case.

 

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About Curtis Cooper

Curtis Cooper is principal of Lawyers Insurance Group – Broker For Great Law Firms, which helps attorneys optimize their malpractice coverage. Contact him by phone: (202) 802-6415, or email: ccooper “at” lawyersinsurer.com.